Strategy Update: April 2026
Eurozone Car Manufacturers – The New Retail Banks
REVIEW
THE FINANCIAL MARKETS IN MARCH
March 2026 was a month in which several warning lights flashed at once for global financial markets. First, the Iran conflict delivered a sharp shock to commodities and equities; then it became clear that the much-celebrated private credit sector was not running nearly as smoothly as it had long been sold to investors. What looked like two separate problems was in fact one stress test for the global financial system: geopolitical tension collided with a credit market that suddenly looked more fragile.
The trigger at the surface was easy to spot. As the Middle East conflict escalated, oil prices surged, bringing back exactly what markets least wanted: inflation fears. When energy becomes more expensive, costs rise almost everywhere with it — from transport to production. The result was a classic risk-off moment: equities came under pressure, bond markets lost their calm, and hopes for near-term rate cuts faded noticeably. Bloomberg described the move as a sudden break in market sentiment: even on the same day oil spiked, sentiment briefly reversed, but the new source of uncertainty remained embedded in the system. What was especially striking was that markets did not wait for an actual supply disruption. The mere risk that the region around key oil transit routes could become unstable was enough to jolt prices and expectations. That shows how sensitive financial markets are when geopolitical risk feeds directly into the energy market. This is what made the Iran conflict so consequential: it was not just a political shock, but a potential inflation shock with direct implications for rates, corporate earnings, and investor sentiment.
While everyone was watching the Middle East, a second problem was unfolding in the background, and it was just as uncomfortable. In the private credit market, where funds lend directly to companies, major firms suddenly imposed redemption limits or restricted withdrawals. The technical language hides a simple reality: too many investors wanted out at the same time, and the funds could not hand back the money quickly enough without dumping the underlying loans. Bloomberg reported that billions of dollars were trapped behind these withdrawal gates during that period. Reuters described a wave of redemptions that put even major names such as Black- Rock, Apollo, and Ares under pressure.
According to the Financial Times, the private credit market was still small compared with the global banking system, but the combination of geopolitical stress, interest-rate uncertainty, and fund outflows suddenly made it a topic for the broad market, not just specialists. In the end, March 2026 was more than just another volatile month. It showed how quickly markets can move from the illusion of control to the reality of vulnerability. First came fear of more expensive oil, then fear of sticky inflation, and then fear of blocked withdrawals in a market long seen as resilient. Put differently: the month began with a geopolitical flashpoint and ended with the uncomfortable realization that even the most modern credit structures can look surprisingly old when stress hits.
OUTLOOK
UNCERTAINTY | INFLATION | TAIL RISK | INVESTABLE
Since the COVID crisis in 2020, investors have seen very few periods of genuine calm. First came the pandemic, then the war in Ukraine, then the escalation in the Middle East, and in 2025 the “Liberation Day” tariffs in the US. Now, the confrontation between the US, Israel, and Iran is adding yet another geopolitical stress test to the list. What makes this especially serious is not only the political escalation itself, but its direct impact on energy supply. The Strait of Hormuz is effectively blocked, putting one of the most important chokepoints for global oil and gas flows under heavy pressure. Around 20 million barrels of oil per day, or roughly 20% of global production, pass through this narrow waterway. A similar share of LNG flows also depends on it. For Asia, the impact is immediate; Europe and the US feel it mainly indirectly — through higher prices, more inflation, and a noticeably more nervous market mood.
The year began on a solid footing. Growth, monetary policy, and corporate earnings had created a reliable base. That base has not disappeared, but it is now under pressure. The global economy is bruised, but not broken. That is the framework we use to assess the situation. The key questions are straightforward, but consequential: How long does the conflict last? And will there be damage to oil and gas infrastructure, which could take years to repair? In such an interconnected global economy, it is not credible to pretend that the effects can be measured precisely today.
Anyone who does so is confusing forecasting with wishful thinking. The most direct transmission channel is inflation. Higher energy prices do not just raise costs at the pump or for heating; they feed through the entire economy. That increases pressure on central banks and can further weaken the growth outlook. There are also often overlooked knock-on effects in the real economy, for example in helium or fertilizers, where even small disruptions can have major consequences for industry, harvests, and food prices.
At the same time, it is becoming clear how strongly disinformation can move markets today. Price swings are no longer driven only by hard facts, but also by headlines, rumors, and political messages that may be revised shortly afterward. That makes markets not only more volatile, but also more vulnerable to sharp overreactions. For investors, the most important thing is therefore to stay focused on the long-term strategy. Panic selling rarely helps. The real problem usually starts afterward, when the question becomes: when do you get back in? We therefore continue to stay invested, rely on robust diversification, and position portfolios around three scenarios: persistent uncertainty, rising inflation expectations, and a possible tail event with severe market corrections. That means the portfolios are broadly aligned with the current environment. If conditions stabilize, we will adjust the positioning selectively. Until then, the focus should remain on the strategy, not the noise of the day.
FOCUS
EUROZONE CAR MANUFACTURERS – THE NEW RETAIL BANKS
What if the most hated sector in the market today turned out to be the next major winner? In May 2021, when I argued that eurozone retail banks were the last truly undervalued asset globally, the idea was widely dismissed as absurd. Four and a half years later, many of those same banks had risen three‑ to eightfold and turned into the market’s favourite momentum stocks. Today, I hear the very same arguments again—this time about European car manufacturers. While they are unlikely to deliver another eight‑bagger, the parallels are striking, and a 2–3x return from here is far from unrealistic.
Today, I meet the same prejudices with regards to eurozone car manufacturers. First, it was Tesla eats it all before BYD assumed the Tesla mantle. Last summer, I had a great dinner with a long-standing client and friend of mine. With him being a horsepower junky and a collector of classic cars, autos were the natural topic. Prior to this engagement, he had been a big fan of Tesla, but when I started laying out the investment case for European car manufacturers, my ‘lecture’ was cut short with his statement “oh, Tesla is dead, everyone knows”. Below I will try to address the numerous prejudices regarding European car manufacturers and depict as to why BYD and its compatriots are unlikely to eat the lunch of our car manufacturers.
BRAND LOYALTY AND DESIGN = HERMES
In early 2016, we had a small group dinner with the CEOs and COOs of all German car manufacturers, aiming to distil the key differentiators for the future of the BEV (Battery Electric Vehicle) market. Brand loyalty, design, efficiency and quality were readily identified. This very much holds true today in the battle to prevail in this new market. Multiple reports in the meantime have gone at length to explain as to why brand loyalty is so sticky. For those of you old enough to remember; it took Toyota 26 years to seriously start penetrating the European car market (at the time we used to call those cars rice bowls). I had systematically asked my clients worried about Chinese competition, whether they would consider buying a Chinese car or whether their wife would be happy owning a Chinese leather bag of identical quality as Hermes or LVMH. The answer was unilaterally “No, never”.
EFFICIENCY = REACH
European car manufacturers, with over 100 years of production experience, are the world champions when it comes to process optimisation, quality and efficiency. European car drivers are spoilt with quality, comfort and passenger compartment insulation. Attributes the Chinese manufacturers struggle to match. The new Mercedes CLA BEV launched in 2025, the “onelitre- car” consumes 12.2 kWh/100 kilometres (WLTP) allowing it a reach of 866 kilometres. The 85 kWh Accu, designed for ultrafast recharging, can charge 325 kilometres within 10 minutes – the time of a pitstop. The current prototype, expected to hit the market in some 18 months, equipped with the new solid-state technology with increased cell energy density of up to 450 Wh/ kg, will only consume 8.9 kWh/100 kilometres, pushing reach to some 1’200 kilometres. The panic related to charging network buildout currently manifested by European politicians will be solved before the planned build-out is reached. Other than the latest small model from BYD consuming 12.4 kWh/100 kilometres, their range is dominated by vehicles consuming 17.5-18.5 kWh/100 kilometres. Tesla does not even have a single model in this low consumption range.
BEST PRICE = DACIA SPRING
In Germany, the largest car market of the eurozone with 30% of sales, the cheapest BEV available is the Dacia Spring from Renault with a list price excluding subsidies of EUR16’900. Factor in dealer discounts, that price comes down to EUR11’900. The Dacia is followed by Leapmotor T03 (Chinese) at EUR18’900 and Citroën ë-C3 and BYD Dolphin Surf both at EUR19’990 (all other BYD models are priced above EUR30’000). Including dealer discounts the Citroën can get down to EUR13’990 and the BYD to EUR12’990. Looking at the vast and reliable dealership and car repair shop network from Dacia/Renault and the very scarce one of BYD (in Switzerland three dealership/car repair shops) the decision seems to be straightforward.
FCF AT TROUGH OF THE CYCLE EARNINGS – THE WORKS OF LUCA DE MEO
Over the last 50 years, the management of European car manufacturers always panicked when the top line (sales) started to slow in an economic downturn and embarked on aggressive price discounts, thus burning FCF and suffering losses. For the last two decades, I have tried to explain to management that a 10% sales slowdown does not necessarily trigger a negative operational leverage, but a 30% discount, bringing the operational margin from 5% to 3.5% certainly will, thus pushing the car company to burn FCF and possibly even lose money. My protestations were to no avail. In July 2020, Luca de Meo assumed his role as CEO from Renault, embarking on a major successful restructuring and vocalising to the market that Renault would no longer discount when confronted with sales weakness. Covid was the acid test to prove him right. In the following 12 months all other European car companies followed suit, thus protecting their FCF in economic downturns. Since 2022, all our European car companies have, in the challenging economic environment triggered by the Russia/Ukraine and US tariff war, suffered relentless negative earnings revisions (earnings have more than halved) thus touching the trough of the cycle of earnings. Historically, they would all have bled cash heavily, were it not for Luca de Meo. All of them today happily continue to generate FCF and offer at very depressed trough earnings FCF yields of 10%+ – previously unheard of.
FCF AND NET CASH = RICH DIVIDENDS AND SHARE BUYBACKS
As was the case with our retail banks over the last couple of years, the arguments for car companies are tangible. While our retail banks had relentlessly delivered rising core tier 1 equity surplus every quarter, our car companies are continuing to generate FCF thus accruing ever higher net industrial cash positions on their balance sheets. They currently hold between 58% (Mercedes-Benz) and 90% (BMW) of their market capitalisation in net cash on their balance sheets. This not only allows them to pay generous and growing dividends (dividend yields of 5%-8%), but savings also allow them to buy back some 5% of their shares p.a. into perpetuity, thus enhancing earnings growth.
VALUATIONS = PARADISE
Back in September 2024, BMW traded down to a market capitalisation of EUR39.8 billion. With a net cash position on its balance sheet of some EUR43 billion, the market not only valued this prestigious luxury car company as worthless, but it even paid us EUR3.2 billion for investing in the company that day. Despite the challenging environment since then, the shares are up 20%, in line with the market. Volkswagen pref. just reported FY25 results and issued their guidance for FY26. They are guiding for a FCF of EUR3-6 billion (midpoint FCF yield of 10%) and a net industrial cash position of EUR32-34 billion, equalling 73% of their market capitalisation. When adjusting the P/E ratio of normalised earnings for this huge net cash position (if you liquidated the company today you would receive net cash proceeds of EUR33 billion), you get a revised P/E of just 1.75x. Historically, our car companies typically traded on 6-8x normalised earnings – mind the gap.
* Guest Article by Hansueli Jost